In 2015, the UK spirits and liqueurs market was estimated to have grown by 1.9% year-on-year. While value growth in the sector is positive, annual growth rates have been tumbling in recent years — with a 9.4% rise in 2011 to serve as a comparison — as a result of reduced upwards pressure on prices in the wake of freezes and cuts to alcohol duty. By volume, the market also saw growth in 2015, although this follows an extended period of decline.
According to the latest edition of Spirits & Liqueurs from business intelligence provider Key Note, alcohol duty has been the key driver of value growth, and one of the main drivers of trends in terms of volume sales. In previous years, the spirits and liqueurs industry has been subject to major increases in the rate of duty paid each year, under the alcohol duty escalator. Under this policy, duty costs were increased by 2% above inflation each year following its introduction in 2008. This led to major price increases across products in the spirits industry, driving an increase in the value of retail sales, but restricting volume sales considerably particularly during the recession and the following period of instability. The policy was, however, abandoned in 2014, and the Government went further by freezing alcohol duties for spirits — avoiding an inflation-linked increase — before announcing a 2% cut in the rate of duty for the sector in the March 2015 budget. This more generous position on alcohol taxation is the key driver behind the return to volume growth in 2015, while the reduced pressure on pricing has led to falling growth rates in retail value sales.
Further announcements on duty costs are likely to remain key in driving the sector. Should the current policy of lower taxation persist, the sector is forecast for fairly low value growth but stronger volume sales. Other trends, such as demand for cocktails; the ongoing gin revival; rising demand for new flavours across categories; rising on-trade expenditure; and premiumisation are also set to help boost the spirits and liqueurs market going forwards.
By Andrew Capstick
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Notes to editors:
Key Note’s 2016 Market Update, Spirits & Liqueurs analyses the market for the same in the UK.
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